Donchian Breakouts with SMA, RSI, and ATR Risk Controls

Summary

This document describes a trend-following system that combines Donchian Channel breakouts with a long-term SMA trend filter and an RSI entry filter. It enters long positions when price breaks above the entry channel while above the SMA, and short positions on a downside break while below it. Shorter Donchian channels define exits. The proposed risk framework sizes positions using ATR, adds units as a favorable trend develops, and uses ATR-based stops.

The document gives specific example settings and rules, along with implementation code, but reports no measured performance results. It identifies likely weaknesses in ranging markets, where false breakouts can produce repeated losses, and notes exposure to slippage, low liquidity, parameter overfitting, concentration in one market, and price gaps. Suggested improvements include testing across market conditions and timeframes, adapting to market regimes, and varying stop or add-on rules. The described benefits are strategy rationale rather than empirical evidence of profitability.

Key ideas

• Donchian Channels provide breakout entries and shorter-channel exits.
• An SMA filter sets the permitted direction, while RSI screens entry conditions.
• ATR informs position sizing and stop distance, and favorable moves can trigger additional units.
• Ranging markets can generate repeated false signals, and gaps can exceed planned stop levels.
• The document presents rules and code but no backtest results establishing performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.